Executive Summary / Key Takeaways

• H&R Block is executing a strategic transformation, blending its foundational human expertise with advanced digital and AI-driven solutions to capture growth in a stable, yet evolving, tax preparation market. The company's omnichannel approach and focus on higher-value clients underpin its resilient business model.
• Recent financial performance demonstrates positive momentum, with Q1 FY2026 revenues increasing 5% to $203.55 million and EBITDA improving 9.4% to a loss of $170.01 million, driven by strong U.S. assisted tax and Wave segment growth.
• Technological differentiators like the GenAI-powered AI Tax Assist, the "Second Look" service, and the Spruce mobile banking platform are enhancing client experience, driving conversion, and expanding year-round engagement, creating a competitive moat.
• The company's fiscal year 2026 outlook projects revenue between $3.875 billion and $3.895 billion and adjusted EPS between $4.85 and $5.00, supported by anticipated tailwinds from increased tax complexity ("One Big Beautiful Bill") and disciplined capital allocation.
• H&R Block maintains a strong commitment to shareholder returns, having repurchased $400 million of shares in Q1 FY2026 and increasing its quarterly dividend by 12%, while strategically acquiring franchise locations to fuel long-term growth.

H&R Block's Enduring Foundation and Evolving Strategy

H&R Block, Inc., established in 1955, has built a seven-decade legacy as a cornerstone of the U.S. tax preparation industry. Headquartered in Kansas City, Missouri, the company has consistently adapted its business model, notably exiting its mortgage operations in fiscal year 2008 to sharpen its focus on core tax services. This strategic clarity laid the groundwork for its current "Block Horizons" imperatives, which emphasize blending digital innovation with human expertise to serve a vast market. The U.S. consumer tax preparation market alone is estimated between $20 billion and $25 billion, with over 130 million annual returns, while the small business market, encompassing tax, bookkeeping, and payroll, exceeds $100 billion.

The industry itself is remarkably stable, growing at approximately a 1% compound annual growth rate for decades. However, recent trends indicate a significant shift, with clients increasingly moving from do-it-yourself (DIY) solutions to assisted preparation, particularly when faced with tax code complexity. This dynamic, observed over three of the last four years, underscores the enduring value clients place on expert help and trust, a domain where H&R Block holds a leadership position. The company's overarching strategy is to capitalize on this trend by focusing investments on more complex, paid filers—both consumers and small businesses—who exhibit stronger loyalty and value additional services, thereby maximizing lifetime value.

Technological Edge and Innovation Driving Client Value

H&R Block's strategic reinvention is deeply rooted in its commitment to technological differentiation, enhancing both client experience and operational efficiency. The company is actively leveraging artificial intelligence (AI) and digital platforms to fortify its competitive position.

A prime example is the GenAI-powered AI Tax Assist tool, integrated into its DIY paid SKUs. This technology significantly expands coverage across a broader range of tax topics, delivering higher confidence and improved outcomes for clients. In fiscal year 2025, new clients leveraging AI Tax Assist demonstrated a notable 13-point increase in conversion rates, highlighting its tangible benefit in guiding users through complex tax scenarios. This tool is offered free of charge within paid DIY packages, providing unlimited access to expert-level guidance and serving as a key differentiator against competitors who may charge extra for similar assistance.

Beyond DIY, H&R Block's "Second Look" service, now enhanced and automated, offers new clients a complimentary review of their past three years of tax returns to uncover missed refund opportunities. This unique offering saw a tenfold increase in new client participation in Q3 FY2025, identifying noteworthy discrepancies in nearly a quarter of those reviews. This not only delivers significant value to clients but also reinforces the thoroughness and expertise of H&R Block's tax professionals, acting as a powerful client acquisition and trust-building mechanism.

The Spruce mobile banking platform further extends H&R Block's technological reach into year-round financial wellness. By April 30, 2025, Spruce had garnered over 700,000 sign-ups, marking a nearly 50% increase year-over-year. Approximately 90% of new Spruce clients also completed a tax return with H&R Block, with half of these being new to the brand, demonstrating strong cross-selling efficacy. Spruce offers a compelling 3.5% APY on savings accounts with no minimum balance or monthly fees, a significant competitive advantage over traditional banking options. Its "Smart Tax Refund" feature, allowing clients to save an average of 26% of their tax refund, and the ability to access refunds up to five days early, underscore its role in fostering prudent financial habits and deepening client engagement beyond tax season.

In the small business segment, Wave provides digital-first product capabilities, including accounting, invoicing, and payment processing. This platform delivered a 13.1% revenue increase in Q1 FY2026, driven by momentum in its high-margin Pro-Tier subscription product and strong payment volumes. The integration of Wave's digital offerings with Block Advisors creates a unified experience, expanding the value proposition for small business clients.

The company's commitment to technological advancement is set to accelerate under CEO-elect Curtis Campbell, whose background in technology and product leadership positions him to further evolve product design and engineering capabilities. His mandate includes leveraging AI to improve customer experience, enhance the efficiency of tax professionals, and drive organizational productivity.

Robust Financial Performance and Shareholder Returns

H&R Block's financial performance reflects its strategic focus and operational effectiveness, even in the seasonally quiet first fiscal quarter. For the three months ended September 30, 2025 (Q1 FY2026), the company reported total revenues of $203.55 million, a 5% increase over the prior year. This growth was primarily fueled by a 13.2% increase in U.S. assisted tax preparation revenues and a 13.1% surge in Wave revenues. Despite the typical Q1 net loss due to seasonality, the company demonstrated improved profitability, with the EBITDA loss narrowing by 9.4% to $170.01 million and the net loss from continuing operations improving by 3.5% to $165.37 million.

Operating expenses saw a disciplined reduction of 2.7% in Q1 FY2026, largely due to lower legal fees and settlements compared to an elevated prior-year period. However, investments in talent were evident, with field wages increasing 2.4% and other wages rising 2.5% due to higher preseason, tax professional, and corporate wages. Technology-related expenses also increased by 7.5%, reflecting ongoing cloud-related technology spend.

For the full fiscal year 2025, H&R Block delivered total revenue of $3.8 billion, a 4.2% increase, and EBITDA of $976 million, up 1.4% year-over-year. Net income from continuing operations grew 6.8% to $609 million, with adjusted diluted EPS increasing 5.7% to $4.66.

The company consistently generates strong free cash flow, exceeding $650 million in each of the last three years.

H&R Block's commitment to shareholder returns remains a core tenet of its capital allocation strategy. In Q1 FY2026, the company repurchased 7.9 million shares for $400 million at an average price of $50.90 per share, effectively completing its share repurchase plan for fiscal 2026 and retiring approximately 6% of its outstanding shares. This contributed to a total of approximately $455 million returned to shareholders in the quarter, bringing the cumulative capital returned since 2016 to nearly $5 billion. The company also announced a 12% increase in its quarterly dividend to $0.42 per share in August 2025, underscoring its confidence in future cash flow generation.

Liquidity is robust, supported by a $1.5 billion unsecured committed line of credit (CLOC) extended to July 2030. In August 2025, H&R Block issued $350 million of 5.38% Senior Notes due September 2032, using the proceeds to redeem existing debt, demonstrating proactive balance sheet management.

Competitive Landscape and Strategic Positioning

H&R Block operates in a highly competitive environment, primarily contending with Intuit (TurboTax), Jackson Hewitt, and a vast, fragmented network of independent tax preparers. While Intuit (INTU) dominates the digital DIY space and is making inroads into assisted services, and Jackson Hewitt competes on affordability in the assisted segment, H&R Block's competitive edge lies in its unique omnichannel approach. This strategy combines its extensive physical footprint of nearly 9,000 offices, conveniently located within five miles of most Americans, with its sophisticated digital platforms.

H&R Block's offerings, such as the free "Second Look" service and the "Price Match Guarantee" for new assisted clients, directly address customer pain points and differentiate it from both independent preparers and larger digital rivals. The company's disciplined approach in the DIY market, prioritizing paying clients and those with a high propensity to become paying, contrasts with some competitors' "unprecedented promotional environment" for free clients, which H&R Block views as a less efficient use of capital for long-term shareholder value.

In the small business arena, the combination of Block Advisors' in-person expertise and Wave's digital-first solutions provides a comprehensive suite of services that competes effectively against independent providers and larger software companies like QuickBooks. The company's focus on acquiring franchise locations opportunistically further strengthens its market presence and long-term revenue growth.

Outlook and Key Risks

H&R Block has reaffirmed its fiscal year 2026 outlook, projecting revenue between $3.875 billion and $3.895 billion, EBITDA between $1.015 billion and $1.035 billion, and adjusted diluted EPS between $4.85 and $5.00. This guidance assumes approximately $400 million in share repurchases in the first half of the fiscal year. Key assumptions include industry growth consistent with historical trends (around 1%), a healthier balance of volume, price, and mix, and small business becoming a more significant revenue contributor.

A notable tailwind for fiscal year 2026 is the anticipated impact of the "One Big Beautiful Bill," which is expected to increase tax complexity and drive a shift of clients from DIY to assisted services. Management is cautiously optimistic, using the approximately 20 basis point shift observed in the prior tax season as a proxy for this opportunity. The company aims to cut its market share losses in half at the midpoint of its guidance, with the potential to grow with the market at the top end of the range, primarily by improving client conversion and driving qualified traffic.

Despite a strong outlook, H&R Block faces several risks. The company is subject to ongoing governmental inquiries, class actions, and mass arbitrations related to the IRS Free File Program and DIY services, which could lead to operational modifications or substantial payments. While no material impact is anticipated from the new 1099-K forms in fiscal year 2025, this will be a year of learning as millions receive these documents for the first time, with thresholds expected to lower in future years, potentially impacting client needs. Balancing approval and repayment rates for Emerald Advance loans also remains an ongoing focus.

Conclusion

H&R Block is demonstrating a compelling investment thesis, rooted in its resilient business model and strategic evolution. By effectively blending its deep human expertise with cutting-edge digital and AI technologies, the company is enhancing client value, driving operational efficiencies, and solidifying its competitive position in a stable, yet increasingly complex, tax preparation market. The reaffirmed fiscal year 2026 guidance, supported by a clear strategic roadmap and a strong commitment to shareholder returns, underscores management's confidence in sustained growth. As Curtis Campbell assumes the CEO role, his focus on accelerating technological advancements, particularly in AI, is poised to further strengthen H&R Block's competitive moat and drive long-term value creation for investors.